Shenzhen Jieshun Science and Technology IndustryLtd's (SZSE:002609) Returns On Capital Not Reflecting Well On The Business

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Shenzhen Jieshun Science and Technology IndustryLtd (SZSE:002609), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Shenzhen Jieshun Science and Technology IndustryLtd:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.025 = CN¥71m ÷ (CN¥3.7b - CN¥897m) (Based on the trailing twelve months to June 2024).

Therefore, Shenzhen Jieshun Science and Technology IndustryLtd has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.4%.

View our latest analysis for Shenzhen Jieshun Science and Technology IndustryLtd

Above you can see how the current ROCE for Shenzhen Jieshun Science and Technology IndustryLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shenzhen Jieshun Science and Technology IndustryLtd .

The Trend Of ROCE

In terms of Shenzhen Jieshun Science and Technology IndustryLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 2.5% from 3.8% five years ago. However it looks like Shenzhen Jieshun Science and Technology IndustryLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by Shenzhen Jieshun Science and Technology IndustryLtd's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 20% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a separate note, we've found 2 warning signs for Shenzhen Jieshun Science and Technology IndustryLtd you'll probably want to know about.

While Shenzhen Jieshun Science and Technology IndustryLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.